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The decline and fall

Where did it all go wrong for Independent Insurance? Christine Seib charts the insurer's downfall

26 April 2001Independent chairman Garth Ramsay announces Michael Bright's resignation as chief executive at the company's AGM - just a month after Bright was granted 263,989 shares under the company's incentive plan.

Independent has already been hit by losses from its French operations and unprofitable fleet motor and property lines. It has already increased its stop-loss reinsurance at the urging of its auditors Watson Wyatt, paying £105m in cash and a charge on its property assets for £248m in cover.

Analysts remain positive, saying Independent is unlikely to be the subject of a hostile takeover.

AM Best drops its rating from A (excellent) with negative implications to A- (excellent) with developing implications.

14 June 2001Independent's troubles deepen as trading in its shares is suspended, following its announcement that it is in preliminary takeover talks and is considering a share placing in a bid to keep its solvency ratio around 50%.

Meanwhile, the company's directors reveal they have discovered a number of reinsurance contracts that were allegedly signed without their knowledge.

S&P drops Independent's credit rating to BBB+ and keeps it on credit watch.

21 June 2001Independent goes into provisional liquidation, amid accusations that it has vastly under-reserved London Market business and failed to record claims properly.

The Serious Fraud Office (SFO) says it is examining a Financial Services Authority (FSA) file, to decide if it should investigate Independent.

PricewaterhouseCoopers (PWC) is appointed liquidator, as shocked Independent staff reveal that they were encouraged to buy shares in the company through the share save scheme as late as 1 June. Insurance Times organises an emergency meeting for brokers.

Meanwhile, rival insurers move quickly to mop up Independent's business, with Royal & SunAlliance (R&SA) and Folgate announcing that they will consider taking its renewals.

AXA Insurance and Allianz Cornhill confirm they are considering business that their premium brokers had placed with Independent.

The future of Independent's loss adjuster Property & Casualty Services (PCS) is uncertain, as it is reported that its directors are considering a management buy-out (MBO).

28 June 2001The Creditors of Independent Insurance Group (CIIG) is formed, advised by Class Law partner Stephen Alexander, with Argyll Insurance Group managing director Kevin Young as chairman.

More than 200 brokers attend the Insurance Times' emergency meeting, to hear a panel of speakers that includes PWC liquidators Dan Schwarzmann and Mark Batten.

Independent's auditor KPMG, which certified Independent had "adequate resources" weeks before the liquidation, announces a review of its work with Independent.

R&SA alleges that Independent "systematically underpriced" its commercial business by up to 50%.

Contractors are forced to abandon repairs for policyholders.

Meanwhile, Independent staff allege that a second claims ledger was held separate from the main computerised ledger. The allegations could support suspicions that Independent handled claims fraudulently.

Premium Credit writes to Independent's personal lines policyholders, threatening legal action if they do not fulfil their legal obligation to continue to pay their loans.

5 July 2001PWC makes 1,044 Independent staff redundant, mostly in sales, marketing and new business underwriting. One staff member tells Insurance Times that they will receive only the statutory minimum redundancy payment of one week's pay per year of service.

AXA buys Independent's small commercial risks site business-risk.com for an undisclosed amount.

Broker Gary Carroll of Midlands Risk Management alleges that a £3.5m claim was not entered onto Independent's claims system, leaving his client without payment and in severe financial difficulties.

The CIIG says it expects more than 2,000 creditors to raise about £1m to take group legal action.

Premium Credit withdraws its threat of legal action after it learns that the Policyholders' Protection Board (PPB) is likely to make the outstanding monies.

12 July 2001Insurance Times discovers that French insurance regulator the Commission de Controle des Assurances (CCA) warned the FSA as far back as December 2000 of its concerns over reserving and claims at Independent's French office.

The CCA alleges that the French books were being falsified, with some claims not being entered and others being entered at "miniscule" sums, on the orders of senior UK figure.

FSA chairman Howard Davies is forced to angrily deny the allegations, prompting a slanging match in the nationals.

Meanwhile, R&SA buys PCS for £3m, scooping up its 300 staff, buildings and cars worth £2.5m and £500,000 worth of existing business. R&SA says it has intended for some time to develop in-house claims handling and that it will use PCS to kickstart the project.

It is announced that all of Independent's policies will be cancelled on 31 July.

19 July 2001Insurance Times uncovers a series of covert and incestuous insurance deals between Independent and Dublin-based reinsurer Ireco, which took £100m off Independent's stated reinsurance cover.

At least three of Independent's directors join the CIIG, as Labour MP Barry Gardiner demands an external inquiry into the FSA's regulation of Independent.

HSBC announces it will take legal action to recover £4.3m lent to Bright in late 2000.

Insurance Times uncovers the first hard evidence of claims mishandling at the company, as one broker reveals that Independent wiped employers' liability (EL) claims notifications off its books after six months, despite the legal limitation of at least three years for such claims.

Premium Credit chairman Graham Puttergill insists his company kept an "arm's length" relationship with Independent and was taken "completely by surprise" by its collapse, despite allegations that Premium Credit was in trouble after Independent's collapse.

Davies Arnold Cooper, Davies Lavery and Berrymans Lace Mawer say Independent was an agent of the policyholders when it appointed them to act on cases, thus rendering the policyholders responsible for the costs.

European MPs demand that the European Commission launch an investigation into

UK insurance regulation following the Independent debacle.

The PPB sets up a temporary website to cope with the overwhelming demand for information from Independent's policyholders.

9 August 2001The CIIG reveals that it needs at least £1m more before it can start legal action against those involved in Independent's collapse.

Alexander spells it out bluntly: "Fence-sitting, a popular British pastime, will not get people compensation".

Norwich Union (NU) estimates that the Independent collapse will cost it up to £100m, including £14m it is putting aside for a cash call from the PPB. R&SA announces that it has reserved a similar pro-rata amount, estimated to be £8m.

PWC posts an advertisement on the Independent's website for claims negotiators. The positions will be with the solvent run-off company that it plans to establish to handle Independent's outstanding claims.

16 August 2001Construction lawyers warn policyholders that they could be liable for outstanding payments on building work by Independent's contracts. One Independent policyholder received a demand for £9,000 for fire damage repair work, even though Independent had told him the bill had been paid in May.

Ireland's Small Firm Association (SFA) begins lobbying the Irish government to launch an official action group for its members who held Independent's EL and PL policies.

At the same time, the PPB announces that Ireland's policyholders will be protected under UK law. Independent's redundant employees are outraged to learn that the 600 staff kept on by PWC will receive £1,000 bonuses to stay loyal. PWC stresses that it does not intend the bonuses to be a snub.

23 August 2001A row brews between PWC and brokers over the handover of gross premiums, with PWC pressing for their return. Broker bodies advise their members to keep hold of commissions and pay back net premiums if possible.

30 August 2001The PPB racks up £2m in hardship payments to almost 200 Independent policyholders, while Premium Credit announces it has set aside £5.6m to cover losses arising from its dealings with Independent.

More than 20 companies, each owing up to £15,000 in legal fees, sign up to the Claimex action group fighting against having to pay Independent's panel solicitors' fees.

6 September 2001The Claimex group holds a "review and consolidation" meeting, having collected £10,000 to take its case to Queen's Counsel.

13 September 2001Thousands of construction and warehousing companies face financial difficulties after Independent's collapse, broker John Lampier & Son warns.

Lampier reports that companies were left without cover and "tens of thousands of pounds out of pocket", including one Bath company that was left with a £100,000 debt.

20 September 2001Angry ex-Independent staff claim that PWC is issuing "misinformation" at a 75-strong meeting in Manchester. They say their statutory redundancy pay still has not arrived. Batten agrees to meet a delegation from the meeting to discuss the situation.

Meanwhile, it emerges that Bright will keep his Spanish holiday home, despite being declared bankrupt. Bright's bankruptcy trustee Philip Sykes of Moore Stephens says Bright's Kent mansion and Wapping apartment are already up for sale, with proceeds to be divided between Bright's creditors and his wife.

27 September 2001Hundreds of redundant Independent staff vow to take PWC to an employment tribunal for unfair dismissal. If the case succeeds, it could cost PWC hundreds of thousands of pounds, with the maximum award for unfair dismissal set at £50,000. Staff also give PWC a list of 30 questions and demand that answers be supplied within seven days.

Independent's legal panel meet with the PPB to discuss the firms' demands for payment from policyholders, after asking some policyholders to pay up to £25,000 for legal work done at Independent's instruction.

4 October 2001Independent's executives ensured their cronies avoided redundancy, ex-Independent staff claim. PWC claims redundancies were chosen on length of service, appraisal grade and flexibility, but staff say that the criteria were not observed, with too many highly paid managers kept on at the expense of other staff.

11 October 2001The CIIG say they will not pursue Bright or his directors, leaving them to the SFO and the liquidators. CIIG chairman Kevin Young says the CIIG plans to put the findings of its feasibility study to its members by the end of October.

18 October 2001Natwest's lawyers say they are confident of recovering £290,000 from Bright's wife Katie, despite vows by Bright's lawyer that he will fight the action. Natwest attempts to claw back money on a joint loan account in both Brights' names. Bright owes £4.3m to HSBC and an undisclosed sum to the Inland Revenue.

25 October 2001PWC sends out letters asking for the return of premiums net of commission on all Independent policies, and the commission on the unexpired portion of policies cancelled on Independent's collapse. In response the CIIG widens the scope of its meeting, originally to discuss its legal action, to include brokers who want to discuss the issue. Biba chief executive Mike Williams warns brokers not to return any money to PWC without their clients' consent.

Meanwhile, the Institute of Chartered Accountants announces that it will launch an investigation into the roles played by KPMG and Independent finance director Dennis Lomas in the insurer's collapse. The report is expected to be ready in mid-2002.

1 November 2001The CIIG threatens to take legal action against PWC to obtain the evidence it needs to pursue Independent's actuary, Watson Wyatt. Alexander of Class Law says he has requested information from PWC and has been refused.

8 November 2001Biba organises a group of Independent's club brokers to lobby PWC on the return of commissions, following a meeting between Williams and Schwarzmann. Schwarzmann says he is willing to listen to arguments from brokers as to why they should not pay.

15 November 2001PWC pays the £1,000 bonuses promised to staff who remained at Aurora.

29 November 2001The CIIG announces that it will take legal action to remove the FSA's statutory immunity from negligence claims. Young says the group has joined with Equitable Life's policyholders to commission Class Law to investigate ways of making the FSA accountable.

20 December 2001R&SA plans to close the 12 regional offices it acquired when it bought PCS from Independent. Up to 60 staff are to be made redundant, with PCS's network of 300 loss adjusters to work from home.

4 January 2002Reinsurer Ireco is to face legal action from Independent and Equitable Life's creditors, Class Law partner Alexander says. The FSA is already investigating the Irish company for its dealings with Equitable Life.

17 January 2002Bright's wife Katie claims that her husband duped her into signing the Natwest loan documents, in a bid to thwart the bank's attempt to recover its £290,000 loan.

31 January 2002Grimsby engineering firm Lex Engineering says it faces a £150,000 EL payout because its cover was with Independent.

14 February 2002CIIG chairman Young denies he is leaving the creditor's group, despite reports that it is taking up too much of his time.

7 March 2002A Biba survey shows brokers are holding more than £50m in premiums collected from Independent policyholders.

14 March 2002Time is running out to join the CIIG, warns chairman Young, as the group announces its first class action will be against the FSA. Alexander says the group will make an application for pre-action disclosure to force the FSA to release all its documents on Independent.

28 March 2002PWC says it is close to offering a compromise to brokers over returning premiums. Schwarzmann says he has the details of Independent's 300 agency brokers and asks the rest of the non-agency brokers to contact him.

4 April 2002Biba says it expects PWC to present the compromise deal to brokers within this week.

11 April 2002Lawyers representing Independent's Spanish policyholders say they will write to the FSA, asking what it has done to prevent another UK collapse.

20 April 2002The CIIG announces it will file its group litigation order against the FSA within ten days. Chairman Kevin Young says this will force anyone sitting on the fence to make a decision.

to be continued...

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